Citi Upgrades Nike to Buy on Stabilizing China, Stock Up 1%

By Ben Levisohn

Citigroup upgraded Nike (NKE) to a buy from neutral after yesterday’s market close. One of the big reasons: China.

Citi’s analysts write:

Though Nike posted negative China futures in the last 2 quarters (down mid-single digits), Citi’s China analysts Eddie Lau and Catherine Lim believe consumer spending is poised for improvement in 2013, with accelerating comp trends (retail sales up +14.5% in Oct, +14.9% in Nov, and +15.2% in Dec), less political uncertainty now that the new government is in place, easier compares, and ongoing progress on excess inventory cleanup. While we think the inflection point could still be another 2 – 3 quarters away, Nike’s higher gross and EBIT margin China business should start to contribute positively again to the company’s overall sales & profitability.

Combine a stabilizing China with its strong North America business and the potential for conditions in Europe to become less bad, and you have the recipe for outperformance.

Nike’s shares have jumped 0.9% to $54.51 at 9:36am–not bad considering the S&P 500 is down 0.45%. The shares had gained 13.4% during the past three months.

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Emerging markets have been synonymous with growth, but the outlook for individual nations is constantly changing. Countries from Brazil and Russia to Turkey face challenges including infrastructure bottlenecks, credit issues and political shifts. Barrons.com’s Emerging Markets Daily blog analyzes news, data and research out of emerging markets beyond Asia to help readers navigate the investment landscape.

Barron’s veteran Dimitra DeFotis has been blogging about emerging market investing since traveling to India and Turkey. Based in New York, she previously wrote for Barron’s about U.S. equity investing, including cover stories and roundtables on energy themes. Dimitra was among the first digital journalists at the Chicago Tribune and started her career as a police reporter at the Daily Herald in the Chicago suburbs. Dimitra holds degrees from the University of Illinois and Columbia University, where she was a Knight-Bagehot Fellow in the business and journalism schools. She studies multiple languages and photography.